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Ownership: Form 40-17F1

This form, filed by an independent auditor, helps the SEC make sure that an investment company is following required procedures.

by MoneyWatch.com | Feb 12, 2010 | Comments

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  • Don’t miss: The auditor’s letter, which should let you know if anything is amiss in management’s statement of compliance with SEC regulations.

Most mutual funds rely on investment companies to hold the stocks and bonds they own. But a few store their securities with a registered broker-dealer, which means they are subject to slightly different auditing rules. In such cases, the independent auditor files a form 40-17F1. The primary purpose of the form is to help the SEC make sure that the investment company is following required procedures. For you, the investor, the main thing is to make sure the form has actually been filed.

The Rules

In short, the SEC requires twice-a-year audits of certain investment companies to make sure they are following the rules when it comes to custody of stocks, bonds and other securities on behalf of investors. This particular regulation — 270.17F-1 of the Investment Company Act of 1940 — applies to mutual funds and other investment companies whose securities are held by registered broker-dealers that are members of of a national security exchange such as the New York Stock Exchange. After each audit — one scheduled and one unscheduled — the auditing firm filed a letter certifying that the custodial arrangement meets the rules.

What to Look For

The main thing to check is that the form has, in fact, been filed. Consider it a major red flag if no such form exists, says SEC spokesman John Heine. That doesn’t happen very often, however.

The filing also includes an assertion by management that it is in compliance with SEC regulations for the custodial arrangement and a statement by the independent auditor that that assertion is valid. To save time, skip down to the auditor's letter to make sure everything checks out.

*Footnote:
It's more common for a mutual fund to place custody of its securities with another investment management company, rather than a broker dealer. In that case the company files a similar form, 40-17F2.
 
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  •  
    1

    jongreen222

    04/17/10 | Report as spam

    RE: Ownership: Form 40-17F1

    Thanks for sharing this SEC ownership form. I'm glad that the SEC will do more that one audit a year, but what kind of investment companies that will be on their list? Why not all investment companies?

    Sam
    Homemade Generator

  •  
    2

    donnawallin

    05/11/11 | Report as spam

    RE: Ownership: Form 40-17F1

    So basically, this form isn't really investigated much as long as it
    is filed? It seems like no one would actually make a stink about
    it unless it wasn't filed, then the SEC might actually do
    something. Is that right?

    Donna
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  •  
    3

    dinelson

    06/01/11 | Report as spam

    RE: Ownership: Form 40-17F1

    It is important to know that the company is following required precedures. I wonder if this is often an issue? This reminds me of when I first learned about grants to pay off student loans.

  •  
    4

    kuzu112

    06/15/11 | Report as spam

    x

    It is important to know that the company is following required precedures. I wonder if this is often an issue? This reminds me of when I first learned aboutFree Porn Video

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